If the management of Ford of Europe were to support local content regulations, they felt they would have to answer four technical questions:
- How should "local" be defined geographically?
- How was local content to be measured?
- To what should local content regulations be applied-individual cars, models, or a producer's entire, fleet?
- What should the minimum percentage of local content be?
The company had already done some thinking about each question.
Of all the producers, Ford was the most geographically integrated in Europe. It would therefore be important to encompass most or all of Europe in the term "local." A definition restricted to the EEC would exclude Ford's big Valencia plant in Spain and a 200,OOO-unit per year plant contemplated for Portugal. These plants represented critical low-cost sources for small cars for the other European markets. (Both Spain and Portugal had applied for admission to the EEC, however.) Ford regarded a nation-state definition as impractical and intolerable.
Defining local content was a very difficult task. One proposal was to define content by weight. This had the advantage of being difficult to manipulate by transfer pricing, but it might allow the importation of high-value, high-technology components that were light in weight.
The other common definition of local content was by value. Essentially the percentage of local content was established by subtracting the value of the imported components as declared on customs documentation from I) the distributor's price, 2) the ex-works price, or 3) the ex-works price minus the labor and overhead content of the car. Then the local content residue was divided by the corresponding denominator.
Clearly the percentage of the imported components gets larger from I) to 3) as the value of the domestic content gets smaller. Ford had not decided its position with regard to this issue, except that it did not want specific components identifieci for mandatory local production. It was also possible to devise other hybrid methods of valuing local content, but they were generally not under discussion.
Regarding the question of to what should the local content rules be applied, Ford favored applying them to the average of a producer's entire line of cars, rather than to each individual car or model. The [latter] would jeopardize Ford's current importation from South Africa of small quantities of their PIOO pickup truck (based on the "Cortina").
There was also a related question of whether automobile production or regional sales should form the basis of measurement. Ford preferred that a specified percentage of a producer's European sales be made in Europe, since such a rule was insurance against circumvention of the current import quotas. A production-based local content rule would only prevent circumvention of the intent of import quotas by token local final assembly.
Finally there was the question of what the appropriate percentage should be. Figures currently under discussion ranged from 60 to 80 percent, although the percentage clearly depended on the format of the specific proposals. Of particular significance in terms of these percentages was that a 60 percent rule might allow importation of engines and major parts of the drive train that would all be excluded by an 80 percent rule. Also, it might be very difficult for the Japanese to start up a new plant with an immediate 80 percent local content (even if that percentage were to be achieved with more time). Startup at 60 percent would be substantially easier.
- 1079 reads
